Growing Chinese appetite ignites U.S. methanol renaissance

China’s growing appetite for methanol has ignited a renaissance in North America, where vast supplies of cheap natural gas from the U.S. shale boom are attracting Chinese investments into new methanol plants.

The methanol market has accelerated rapidly in recent years as the Chinese throw their money behind new projects to expand North America’s capacity to produce methanol. Made from natural gas, methanol is used in a wide range of products, including plastics, paints, solvents, refrigerants and pigments.

Other countries also use methanol as a replacement or an additive to gasoline, but the U.S. Environmental Protection Agency has not approved it as a transportation fuel.

According to projections, the world will add 50 million metric tons of new methanol capacity within the next decade, with about one-third of that coming from North America, according to a new report by Houston-based energy analyst firm IHS.

“This is more than six times today’s output, and heralds the return of the North American methanol industry as a production powerhouse,” said Mike Nash, global director of syngas chemicals at IHS Chemical in a statement.

North America is now poised to become a net exporter of methanol in 2017, IHS said.

Still, Nash urged caution, saying some projects may not come to fruition as a surge of new Gulf Coast refining and petrochemical investments creates stiff competition for materials and highly skilled labor. That will likely lead to project delays and cost overruns that may ultimately force some companies to scrap plans for new plants and expansions.

“It’s so easy to look at all these press announcements and then say the world is going to be swimming in methanol, but that’s not necessarily the case,” Nash said.

Demand for methanol is rising in China, which has an exploding population and a booming economy. The country is by far the world’s largest methanol consumer, eating up about 51 percent of the global stock and producing 30 percent. The country’s growing demand for more methanol can be traced to its emerging new methanol-to-olefins technology, which converts merchant methanol into ethylene, propylene and other derivatives that can then be used as chemical building blocks.

With supplies unable to keep pace, China has turned its focus to imports, which are projected to increase six-fold in the next decade, IHS said.

The Chinese-fueled methanol resurgence can be seen in places like Texas City, which last month announced that it’s one of two Gulf Coast locations in the running for a $4.5 billion methanol manufacturing and exporting plant under development by a Chinese company.

At full capacity, the plant under consideration would produce 7.2 million tons of methanol each year for export to China, making it one of the largest in the world, according to industry consultants.

The announcement came on the heels of another by a Dutch fertilizer company, which said in November that it planned to build the United States’ largest methanol plant, a $1 billion facility in Beaumont capable of producing 1.75 million tons of methanol per year. The proposed Texas City plant would be four times as large.

Nash said the “tidal wave” of new U.S. projects also includes the re-start or relocation of old plants.

Louisiana will soon become home to two Methanex units, capable of producing 1 million metric tons of methanol each per year. The units are being taken apart apart in Chile and moved to Louisiana, where they will be reassembled and re-started. One is slated to come online at the end of this year while another should start operations in 2016, Nash said.

LyondellBasell in January said it restarted a Gulf Coast methanol plant, which had been shut down a decade earlier because natural gas prices were too high. Now that gas prices have fallen again, LyondellBasell jumped at the opportunity to add new capacity at a much lower price than building a new plant, company officials said.

The plant, capable of producing 780,000 tons of methanol per year, added 24 new jobs to the company’s complex in Channelview.

With China driving the demand, global methanol consumption is expected increase from 60.7 million metric tons per year to more than 109 million metric tons per year in 2023, according to the IHS report.